A payment of $8,400 a month for nine years of service sounds like a fairly good pension benefit. But as a former Alberta government worker found out, it was too good to be true as the province decided it had made an error in calculating his benefit after he had already started collecting his pension. In his case, the mistake has cost the government more than $265,000 in damages, with more pensioners likely to seek similar redress following a court ruling on the issue this month.

“It was a shock . . . to these individuals,” says lawyer Rita Richardson, who represents retiree William Calder, of the pensioners’ reactions when they learned a couple of years ago of the significant cuts to their benefits after the province decided it had made an error in the calculations. This month, the Alberta Court of Queen’s Bench issued a ruling that dealt with Calder’s circumstances as a test case for about 25 other people in similar circumstances.

The case, Calder v. Alberta, dealt with a move by the Alberta government in 1994 to close its existing non-contributory pension plan and replace it with a new one. Calder was among a small group of public service managers who had left the government before the new plan came into effect and later returned to management roles. In Calder’s case, he worked for the province from 1978-86 and then returned in 1995. He retired in 2011 after learning his pension entitlement for the earlier service, calculated at just over nine years, would be more than $8,000 a month. He sued after learning in 2014 his monthly benefit under the old plan — not including the more than $3,200 he was receiving under the new one — would fall to about $2,200.

A key issue was which salary level to apply in calculating the benefit. In 2009, the Alberta Pension Services Corp. interpreted the Public Service Pension Plan Act as requiring it to calculate members’ highest annual average salaries based on their entire career with the public service. The calculation also included cost-of-living and actuarial adjustments. “This had the effect of using relatively recent earnings to establish base pension entitlement in respect of pre-1994 service, and then applying a cost of living escalator and actuarial upgrade to arrive at a present day pension entitlement,” wrote Justice Richard Neufeld in his March 7 ruling.

“As an example, Dr. Calder’s highest average annual salary during his first stint of employment with the province of Alberta was approximately $40,000 prior to his departure in 1986. His highest average annual salary after returning to work for the province of Alberta from 1995 to 2011 was $140,650.73.”

In 2012, the pension agency’s in-house actuary took issue with the 2009 interpretation, suggesting it was “totally inconsistent with anything he had seen before in the pension world,” according to Neufeld’s ruling. While the pension agency adopted a new interpretation in 2012, it wasn’t until 2014 that it informed Calder of his reduced benefits. In informing him of the change, it said it wouldn’t seek to recover the overpayment as long as he provided a full release.

In taking the issue to court, the plaintiffs argued the 2009 interpretation of the benefits calculation was the correct one. Neufeld, however, strongly disagreed: “In my view, an interpretation that enables recent salary to be used as the base point for a pension calculation that is already required to include a [cost-of-living] and actuarial upgrade creates an absurd result in the form of double (if not triple) dipping. To illustrate such an absurdity, APSC showed that Dr. Calder, whose employment was interrupted by a nine-year stint with the government of Saskatchewan, would receive almost twice as much pension under the 2009 interpretation than he would have received if he had continuously worked for the province throughout his career. Such a result could not have been the intention of the legislature.”

Nevertheless, Neufeld found the province liable for negligent misrepresentation in the case. But rather than award Calder damages for the value of the lost pension benefits, Neufeld based the award on the assumption he would have worked full-time for another three years had he received the correct information on his entitlement in the first place. As a result, he awarded Calder $267,000 in damages.

For Richardson, that aspect of the ruling was disappointing. “Clearly, we had hoped we would be able to have the pension reinstated,” says Richardson, who represents six pensioners, along with their spouses, who are in similar positions and are part of the test case. Nevertheless, she says the damages are substantial and she notes the case does offer some lessons for pension plans. Of particular importance is the need to ensure consistency in messages to employees, she says. “They’re planning their careers and their retirement on it. It’s important that [in] those representations, every measure be taken to ensure that they’re accurate.”